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UPDATE: Fletcher dumps Adamson in face of investor dissatisfaction; Binns stays mum

Thursday 20th July 2017

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(Adds investor comment, details on outlook, updates shares)

Fletcher Building has taken the unusual step of dumping its chief executive, Mark Adamson, who leaves immediately with the loss of share options and other incentives as the company slashed its full-year earnings guidance and flagged an impairment against Australian assets. The stock dropped 8.4 percent to a 16-month low of $7.41.

Typically major companies allow underperforming executives to manage their departure, publicly at least, with euphemisms such as leaving to pursue other options or to spend more time with family, but in Adamson's case chairman Ralph Norris said the board deemed it the right time for new leadership. 

Operating earnings in the year ended June 30 were about $525 million, down from $682 million in 2016 and below the $610 million-to-$650 million range the company gave in March, when its slashed earlier guidance by about 15 percent because of problems with two major construction projects. Today it said losses at those projects, which it hasn't identified, would be larger than expected and also announced a $220 million impairment against its Iplex Australia and Tradelink business units. 

"Investors were dissatisfied and this has been enough to warrant a quick exit," said Rickey Ward, New Zealand equities manager at JBWere New Zealand. "Credibility and confidence were severely dented by these downgrades."

In a Q&A section of its statement, Fletcher said the downgrade and impairments had no material impact on the company's outlook for 2018 and the performance of the stock, which was likely to be punished today, would depend on how much credibility the market gave that outlook statement, Ward said. Taking a balanced view, three of Fletcher's divisions "have performed admirably well".

Trading in the building products, international, distribution and residential and land development divisions, as well as three of the four business units in the construction division (Infrastructure, Higgins and South Pacific) were in line with the company’s expectations, previously provided at the time of the interim results on Feb. 22, the company said today.

Fletcher remained "well within its banking covenants and expects to continue to do so".  The ratio of net debt to net debt plus equity is expected to be about 36 percent at the end of the 2017 year, and the ratio of net debt to ebitda to be about 2.7 times, it said.  Any decision on dividend payments would be made "at the time the board approves the annual audited results." 

On a conference call in March to announce the earlier downgrade, Adamson had said he "took full responsibility for the current situation" which led to the downgrade just four weeks after the company affirmed its full-year forecast at the release of its interim results. 

Today he said he was "disappointed to finish my tenure on the back of a challenging result in the construction division, however I am proud of what has been achieved over the last five years – most notably the turnaround of Formica, double-digit earnings growth in distribution, our acquisition of Higgins and the significant progress in our residential development division.”

Investors have speculated that Meridian Energy chief executive Mark Binns may be in line for the top job at Fletcher after announcing he would step down at the end of the year. He had been Fletcher's original Christchurch rebuild czar before being tapped for Meridian's top job almost six years ago.

"A lot of people have been mentioning his name," Wards said. "Whether it is because he is well liked or is a good performer - I've never come across a person who dislikes him. I'm inclined to think it is because he's a good performer."

Binns told BusinessDesk he declined to comment on the rumours.

Adamson would receive "his contractual entitlements" on departure, the company said. "All of his share options will lapse and he will forfeit all shares in the Company’s long term incentive scheme. No short term incentive will be paid in respect of FY17."  

The company named Francisco Irazusta as interim CEO starting on Monday. He is currently CEO of Fletcher's international division and will lead the company while it embarks on a search for a permanent replacement for Adamson.

The company said as work had continued on major projects in its Building + Interiors business "it has become apparent that losses in B+I will exceed those previously estimated."

 "It is very disappointing to see further losses being reported in our B+I business, particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year," Norris said. In addition, a review of the carrying value of its business units had led to an impairment of Iplex Australia and Tradelink.

"While we do see progress in these business units the board felt it was prudent to recognise that the near to medium term estimates of profitability in each business are not aligned with current carrying values,” Norris said.

The company has scheduled a conference call for analysts and investors for 11am New Zealand time. 


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